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Terra meeting in New York City; CF, Terra vie for shareholder support
Wall Street players will not have far to go to attend the Nov. 20 Terra Industries Inc. shareholders’ meeting, as it will be held in New York City. Terra announced Oct. 13 that the meeting will be held at 10:00 a.m. Eastern Standard Time on Friday, Nov. 20, 2009, at the offices of Credit Suisse, 11 Madison Avenue, Floor 2B Auditorium, New York, New York 10010. The date had been previously announced, but not the location and hour.
As it approaches the meeting, Terra listed its major shareholders as of Sept. 30, 2009, as FMR LLC, Boston, at 11.22 percent (11,187,505 shares); CF Industries Holdings Inc., Deerfield, Ill., 7 percent (6,986,048 shares); Barclays Global Investors NA, San Francisco, 5.26 percent (5,246,187 shares); and TPG-Axon Capital Management LP, New York City, 5.15 percent (5,130,000 shares).
Both Terra and CF filed proxy materials last week vying for Terra shareholder support at the meeting. CF continues with its attempt to buy Terra and elect three members to the eight-member Terra board of directors.
“We are looking forward to Terra’s annual meeting on November 20 when Terra stockholders will have the opportunity to show support for CF Industries’ proposal for a business combination with Terra,” said Stephen Wilson, CF chairman, president, and CEO, last week in a letter to Terra shareholders. “We have made a compelling proposal to Terra for an all-stock transaction at a significant premium. Since Terra first proposed a business combination with us in 2004, CF Industries and Terra have had many discussions regarding combining our two companies, including in 2007, when Terra reaffirmed the strategic merits of a combination. Now is the time to advance this compelling business combination by electing our director nominees at Terra’s annual meeting.”
CF argues that its proposal provides Terra stockholders a very substantial premium. It says the proposed exchange ratio of 0.465 of a CF share for each outstanding Terra share represents a premium of over 35 percent to the 0.3449 unaffected exchange ratio based on the closing share prices of CF and Terra on Jan. 15, 2009, when CF announced its initial proposal. It said the premium is well above the average historical premium for all-stock transactions.
CF also lauds its own financial performance in 2009 versus that of Terra, saying that since it made its initial proposal, CF’s financial performance has significantly exceeded that of Terra. For example, CF says for the first half 2009 it generated EBITDA of approximately $508 million, compared to EBITDA generated by Terra of approximately $218 million. CF also says that for the same period its results have exceeded consensus sell-side analysts’ profit expectations by a substantial amount. It says based on this superior financial performance, CF shares would have increased more than Terra’s shares during 2009 absent any takeover proposals, and that the premium offered is effectively well above 35 percent. CF says Terra’s stock price would be significantly lower absent the CF proposal.
Terra has continually argued its value as a “pure play” nitrogen company; however, CF says it was Terra that first proposed a business combination with CF in 2004. CF says such a combo would create the second-largest global nitrogen company.
CF told customers last week that the larger company would expand coverage, lower costs, and optimize supply and logistics functions. It said the transaction would not impact pricing dynamics of fertilizer as the global fertilizer market is highly competitive.
CF told Terra employees that the combo would have little impact on operating jobs given the complementary footprints of CF and Terra manufacturing and distribution. It reiterated that CF would want Terra representation on the combined board, as well as a senior position for Terra CEO Michael Bennett.
CF does expect annual cost synergies of up to $135 million from the elimination of overlapping corporate functions and optimization of transportation and distribution systems, and through greater economies of scale in procurement and purchasing, among other areas.
In the meantime, Terra reiterated its own position to shareholders, saying that CF has made five separate proposals to Terra over the last nine months, none showing any material improvement over the initial unsolicited offer that CF made Jan. 15. It said CF’s proposal is contrary to Terra’s strategy, which will deliver greater value for shareholders than CF’s proposal, and with significantly less risk.
Terra says the combination would shift its focus back to lower-margin agricultural urea and ammonia, which represent 70 percent of CF’s nitrogen sales and only 16 percent of Terra’s, while significantly reducing Terra’s geographic advantages. Terra noted that it currently operates nine ammonia-based nitrogen chemical complexes on three continents, while CF operates two nitrogen complexes and one phosphate facility, all in North America. In addition, it said CF has 73 percent of its ammonia production on the U.S. Gulf Coast, where import competition is the most severe. As for Terra, 65 percent of its ammonia production is already located inland or in gas-advantaged countries, such as Trinidad, where Terra maintains a 50 percent interest in a successful ammonia manufacturing facility.
Terra says the combination would also jeopardize its business diversification strategy, which has not been evident at CF. Terra, by contrast, has spent years developing Terra Environmental Technologies, a leader in nitrogen oxide abatement chemistry and the leading North American diesel exhaust fluid producer.
Terra says the proposal is opportunistic and does not fully reflect the underlying fundamental value of its assets, operations, and strategic plan, including its strong market position, large cash position, and future growth prospects. It says Terra would contribute 59 percent of the nitrogen results of the combined entity (based on full year 2008 results), and that CF’s proposed exchange ratio would give Terra shareholders only 43.6 percent of the equity of the combined entity after giving effect to CF’s adjustment for Terra’s proposed special dividend. In addition, it says CF’s proposed “Contingent Future Shares,” could result in Terra shareholders receiving only 41.2 percent of the equity of the combined company (post-dividend adjustment), which is lower than CF’s initial offer nine months ago.
Terra again said CF shareholders are unlikely to approve a transaction with Terra given the alternative of the Agrium Inc. bid. Terra believes that CF’s stock price has been inflated as a result of Agrium’s pending premium offer for CF, meaning the actual value of CF’s offer could be significantly lower than current trading prices would indicate.
CF signs gas deal in Peru, final decision on new nitrogen plant expected in early 2010
CF Industries Holdings Inc. said Oct. 13 that it has signed an agreement for the supply of natural gas to its proposed nitrogen fertilizer complex in San Juan de Marcona, Peru.
“This agreement represents an important milestone in the development of our Peru fertilizer project,” said Stephen Wilson, CF chairman, president, and CEO. “An assured supply of natural gas under an advantageous pricing structure forms the foundation for this key growth initiative. We recognize the efforts of the consortium and are especially grateful for the support of the federal government of Peru throughout this process.”
Under the agreement, CF will purchase up to 99 million cubic feet of gas per day on a take-or-pay basis from a consortium in Peru that includes Pluspetrol Peru Corp. S.A., Pluspetrol Camisea S.A., Hunt Oil Co. of Peru L.L.C., Sucursal del Peru, SK Energy, Sucursal Peruana, Tecpetrol del Peru S.A.C., Sonatrach Peru Corp. S.A.C., and Repsol Exploración Peru, Sucursal del Peru. The purchase price for the natural gas used to produce petrochemicals at the facility will be based on an index price for urea. The agreement is subject to certain conditions, including completion of the facility and related infrastructure.
CF is currently in the midst of a front-end engineering and design (FEED) study and an environmental impact assessment for the proposed project, which are expected to lead to a final decision in early 2010.
CF said current rough estimates for the project are between $1.5-$2 billion, with the FEED study expected to produce a more precise estimate. The expected capacity is 910,000 mt/y of anhydrous ammonia and 1.3 million mt/y of urea. Most of the ammonia would be used to produce the urea, but a smaller portion would be available for sale to third parties.
CF was notified in 2007 that it was selected by the consortium to progress toward a final gas contract (GM Nov. 26, 2007). Terra Industries Inc., among others, was also a contender for the gas contract in Peru (GM Oct. 29, Nov. 5, 2007). Had Terra and its partner Orica Ltd. won the contract, they were looking toward a nitrogen plant at the southern port of Pisco.
Phosphate flyover receives enviro, media criticism
The Idaho Mining Association’s payment for the use of a state-owned airplane that flew lawmakers and state officials over three Southeast Idaho phosphate mining sites on Sept. 11 has been criticized by some environmentalists and questioned by the Idaho Statesman, the state’s largest newspaper.
Jack Lyman, an IMA lobbyist who helped organize the flight, reimbursed $2,543 to the office of Lt. Gov. Brad Little, who arranged for the Idaho Transportation Department to provide a 10-seat, twin-engine King Air for the flyover.
In addition to Lyman and Little, other passengers included Idaho Attorney General Lawrence Warden, House Assistant Majority Leader Scott Bade, and Clive Strong, a deputy attorney general who specializes in natural resource issues.
They toured the J.R. Simplot Co.’s Smoky Canyon Mine expansion, Monsanto’s proposed Blackfoot Bridge Mine site, and an Agrium site. Simplot and Agrium are planning two new open pit phosphate mines in the region. The plane landed in Afton, Wyo., near Smoky Canyon, then flew to Soda Springs, Idaho, before returning to Boise.
Monsanto and Simplot spokesmen declined to comment about the flyover when contacted by Green Markets, but one of them noted it was little different than when the Idaho Conservation League pays for legislators to take fact-finding raft trips down the Salmon River. An Agrium spokesman could not be reach for comment.
Stressing there was a legitimate public policy reason for the trip, Little defended it by noting that thousands of Southeast Idaho jobs are dependent on phosphate mining and processing. Using the plane also made it more convenient to learn about related issues, such as selenium contamination of waterways, he said.
Little noted his monthly travel budget is $400, and that having the IMA pay the bill saved taxpayers’ money. Lyman said use of the plane by state officials to tour Idaho mines is a legitimate use and would have been an appropriate expenditure of state funds. Because of that, he did not pursue hiring a private charter company.
Lyman said he offered to pay the cost if other state officials would accompany Little. Six of the passengers were elected officials and one was a state official, he said, noting Little had to return to Boise by 5:30 p.m. that day. The IMA has conducted many such tours in the past for legislators, the Idaho Department of Environmental Quality, and Land Board members and their staffs, he said.
“I think it’s important for these officials to see these activities first hand to gain the information they may need as they make decisions affecting the industry and the thousands of Idaho citizens the industry employs,” Lyman told Green Markets.
“Given the state’s budget situation, I understood the lieutenant governor’s reluctance to use his limited budget. This was a unique scheduling issue that had not arisen before, and one I don’t expect to arise again in the future.”
An Idaho Transportation Department spokesman said the flight did not violate policy allowing only state agencies to book the plane because it was reserved by Little’s office for government business. Its reservation and billing process was within the department’s operational guidelines, he said.
Justin Hayes of the Idaho Conservation League said if the ICL had the money it would have done the same as the IMA as long as the flight was legal. Marv Hoyt, the Greater Yellowstone Coalition’s Idaho director, however, sharply criticized the arrangement.
“From GYC’s perspective, this is a big deal. The issue is about appearances,” Hoyt told Green Markets, noting the IMA using a state plane to “ferry” Idaho officials and state employees around the phosphate mining region “smacks of cronyism and is a perfect example of the influence well-heeled mining lobbyists have over state officials.”
Hoyt added: “I’m sure there was little if any discussion during the flight and tours about the 160 miles of cutthroat trout streams that are poisoned by selenium released by phosphate mining, or the hundreds of head of livestock killed from selenium poisoning from mining.”
Bob Cooper, a spokesman for A.G. Warden’s office, said he did not anticipate the flight’s controversy because the state officials were invited by the IMA to learn more about the phosphate industry, which has a major economic impact, employs large numbers of people, and is the subject of significant regulations.
“It was not a big deal. What is surprising to me is the allegation there is something untoward here, particularly coming from the Greater Yellowstone Coalition,” Cooper said, emphasizing Warden has an open door policy and would be glad to meet any groups opposing the flight.
“We’ve never been contacted by any of these groups. In a sense, it looks like they’re more interested in stirring up controversy than they are in educating elected officials,” Cooper said, adding he found it bizarre that newspaper editorials also would find fault with the trip.
The Idaho Statesman editorialized the mine tour looked like a mix of state business and a lobbying effort bankrolled by special interests in an effort to curry support for projects such as Monsanto’s proposed mine. It voiced concern that Warden’s endorsement of the tour could encourage other groups to follow suit and such arrangements could become standard practice.
“We aren’t naive. We understand that special interest groups will spend money to lobby elected officials. As long as this lobbying is transparent, we wouldn’t object to the industry paying state officials’ air fare or arranging a charter plane. So was the mine tour fish or fowl? It’s impossible to tell. That’s the problem.”
Idaho rock property to change hands
Rocky Mountain Resources Corp., Vancouver, B.C., has announced that RMP Resources Corp., a wholly-owned subsidiary, has entered into an agreement with Stonegate Agricom Ltd. to sell a 100 percent interest in the Paris Hills phosphate/vanadium property in Southeast Idaho’s Bear Lake County.
As consideration for the acquisition, Stonegate will pay $1 million in cash and issue six million common Stonegate shares valued at 50 cents per common share. The transaction’s closing, subject to regulatory approval, is expected to occur on Nov. 15, said Rocky Mountain President Brian McAlister, who succeeded Thomas DeMull following DeMull’s resignation in August.
Stonegate is a private Canadian company engaged in the acquisition, exploration, and development of agricultural nutrient projects. Stonegate’s primary focus has been the development of the Mantaro phosphate project in Peru. Sprott Resource Corp. is Stonegate’s majority shareholder.
Rocky Mountain Resources is an industrial metal and minerals exploration and development company focused on development and production.
Last January, Rocky Mountain announced its phosphate holdings in the Paris Hills could sustain mining operations for up to 75 years. At that time, DeMull said its phosphate mineral resource estimate exceeded expectations.
“The existence of a near-surface, high-grade zone of phosphate rock is another pleasant surprise. Our immediate priority will be to develop plans to investigate this high-grade zone as a starter operation to produce quick payback and cash flow could fund long-term project development,” said DeMull.
The company said the estimated phosphate rock resource could potentially be mined and directly shipped as feed to a phosphoric acid plant. The high-grade zone contains an estimated 4.6 million tons at 29 percent of phosphorus pentoxide. It appears in both the upper and lower phosphate beds in the property’s southeastern quadrant.
Underground mining was the proposed method of production in the Montpelier mining district of Bear Lake County, about two miles west of the small towns of Paris and Bloomington, and about 45 miles south of the active Soda Springs phosphate mining district in Caribou County.
A bed of vanadium, a mineral used in steel hardening, lies directly beneath the upper phosphate bed and contains 9.7 percent P2O5. It was being evaluated as a potential co-product to be mined in conjunction with phosphate from the upper bed with shared costs. Historical metallurgical testing by Earth Sciences Inc. indicated that both vanadium and an upgraded phosphate product could be produced from the vanadium bed.
Developing the Paris Hills Project into a mining operation would require environmental permits from federal, state, and local governments.
In the 1970s ESI controlled 4,100 acres, extending from Bloomington Creek on the south through Paris and Sleight Canyons on the north.
The property package that Rocky Mountain assembled included about 2,100 contiguous acres lying between Bloomington Canyon on the south and Paris Canyon on the north. The property holding is a complex mixture of private, state, and federal mineral leases and exploration permits.
Mining activity on the property dates back to the 1910s and 1920s, when phosphate was mined by underground methods from both Paris Canyon and Bloomington Canyon. Activity resumed during World War II when Wyodak Coal, working in conjunction with USGS, USBM, and Metal Reserve Co., focused work on the vanadium rich beds.
Debate continues on chem facility security regulations
The House Energy and Commerce Committee on Oct. 14 completed mark-up of HR 2868, the Chemical Facility Anti-Terrorism Act of 2009. The bill, which would reauthorize and expand the regulatory powers given to the Department of Homeland Security (DHS) in 2007 with the Chemical Facility Anti-Terrorism Standards (CFATS), has drawn criticism from the Agricultural Retailers Association, The Fertilizer Institute, and numerous other trade organizations.
ARA, TFI, and 26 other industry associations sent a letter on Sept. 28 (GM Oct. 5, p. 1) to the committee urging the removal of several provisions in the legislation. These include an “anti-preemption provision,” which would permit state and local governments to adopt or enforce standards more stringent than those required by federal law; a “citizen suit” provision, which would allow any person to bring suit against regulated facilities or the DHS to enforce compliance with the act; and an “inherently safer technologies” (IST) provision, which would require facilities to assess and possibly switch to safer chemicals if alternatives exist.
According to ARA, the citizen suit provision was revised in Wednesday’s mark-up. The bill now contains a citizen enforcement/petition provision instead, which would allow an individual to sue DHS but not the chemical facility directly. ARA called the new provision a “significant improvement,” but said it still has concerns. The IST provision was also modified in the mark-up, but ARA stressed that the current language “would continue to impact covered agricultural facilities.”
ARA said on Oct. 13 that it “continues to work with a broad group of other agricultural organizations (The Fertilizer Institute, CropLife America, American Farm Bureau Federation, etc.) to mitigate the impact some of these provisions would have on the agricultural industry.” The full House committee will likely vote on the bill later this month. ARA said it believes there is a strong likelihood that some of the “more onerous” provisions will be removed from the legislation when the Senate takes up debate on the bill following the House vote. The CFATS rules were set to expire on Oct. 4, ARA noted, but have received a short-term extension.
Also on Oct. 13, the National Association of Chemical Distributors (NACD) sent a letter to the House committee outlining its opposition to the IST and citizen suit provisions. “For most facilities, an IST assessment would likely produce limited options that would not justify the cost and effort of the exercise itself,” wrote NACD Vice President of Government Affairs Jennifer Gibson. “In cases where distributors might be required to reduce inventories of certain products, this would prevent these companies from effectively addressing their customers’ needs.”
NACD also criticized language in the bill that would require chemical facilities to conduct periodic drills and exercises that include local law enforcement and emergency responders. NACD said that requirement “could place facilities in the position of being out-of-compliance with the chemical security regulations because the local emergency responders do not always have the time and resources to spend on these exercises and cannot be forced to participate. NACD expresses support for the concept of such drills and exercises and urges the Committee to allow for flexibility in this area.”
NACD echoed the sentiment expressed by TFI, ARA, and other trade groups that DHS should simply be given permanent authority to implement the existing CFATS, instead of Congress passing new legislation.
Ammonia release at PCS sends 17 to hospital
Aurora, N.C.-All 17 individuals taken to area hospitals for observation after an anhydrous ammonia release Friday, Oct. 9, at PCS Phosphate were back on the job the following Monday, according to PotashCorp officials in Saskatoon, Sask. Spokesman Bill Johnson told Green Markets that all but two were released that night and those two were released on Saturday; everyone was okay and back at work on Monday. He said the release occurred at 2 p.m. at the rail loading station during the unloading of a railcar, but provided no information about what actually occurred or how much ammonia was released. Calls to the Aurora police department and rescue squad were not returned. The company did send out an email at about 4:30 p.m. Friday saying the “leak has been stopped.” The local press reported that 10 of those transported to a hospital were PCS Phosphate employees, and that the seven others worked for a contractor. Meanwhile, North Carolina occupational safety and health officials confirmed they have launched an investigation into the PCS ammonia leak. A state spokesman told Green Markets that it initiates an investigation any time there is a fatality in a workplace or if four or more workers are hospitalized.
PotashCorp takes NB inventory adjustment
Saskatoon-PotashCorp has taken an inventory adjustment shutdown at its New Brunswick potash mine from Oct. 11-Dec. 5. The company said the impact on employment at New Brunswick will be approximately 10 percent of the workforce, or about 30 employees, for the eight-week period. The shutdown will also affect approximately 50 contractors.
Qafco announces $610 M expansion
Oslo-Qatar Fertiliser Co. (Qafco) has signed a letter of intent for the construction of the Qafco-6 expansion project. The cost of the project is estimated at US$610 million. A letter of intent between Qafco and a consortium of the Italian company Saipem and the Korean company Hyundai has been signed for the engineering, procurement, and construction (EPC) of the Qafco-6 expansion project. Yara International ASA owns 25 percent of Qafco, with the remaining 75 percent owned by Industries Qatar. The Qafco-6 project includes the construction of a urea plant with a total daily production capacity of 3,850 mt. The construction work is scheduled to take approximately 35 months, with completion around the end of third quarter 2012. The consortium of Saipem and Hyundai is currently constructing the Qafco-5 project, comprising two ammonia plants with a total daily production capacity of 4,600 mt and a urea plant with a total daily production capacity of 3,850 mt, with completion expected by the end of first quarter 2011. By choosing the same construction consortium and design for Qafco-6 as for Qafco-5, major cost synergies are realized since the consortium now has experience as well as resources mobilized at the site. Upon completion of the Qafco-6 project, Qafco’s total annual production capacity will increase to around 3.8 million mt of ammonia and 5.6 million mt of urea. Qafco will strengthen its position as the world’s largest single-site producer of ammonia and urea. The project will be partially financed with bank loans by Qafco, with the balance coming from Qafco’s existing reserves and cash flow from its operations.
Jacobs, OCP to form engineering joint venture
Pasadena and Casablanca-Jacobs Engineering Group Inc., Pasadena, Calif., and Morocco’s phosphate giant Office Cherifien Des Phosphates (OCP), Casablanca, announced on Oct. 13 their intent to enter into an engineering joint venture agreement. While terms were not disclosed, the jv will provide program, project management, and engineering services for projects based on the US$5 billion investment program of OCP in Morocco. Jacobs said the agreement, when completed, will represent a powerful combination of engineering and program management resources aligned to support OCP in implementing its strategic expansion plans, in particular infrastructure elements of the Jorf Lasfar phosphate hub development. It will also advance Jacobs’ growth plans in the fertilizer industry and in the region. It is anticipated that the jv will provide services to OCP and third parties in their phosphate engineering business activities worldwide. In addition, the parties intend to expand the capabilities of the jv to include infrastructure engineering services to serve the growing West African infrastructure market. The new company, which is expected to be in operation before the end of 2009 and employ over 200 people within a 12-month period, will utilize Jacobs engineering systems and tools and will be staffed by OCP and Jacobs, as well as local hires.